Nolan ruling puts spotlight on ‘no-fault’ dismissals

The recent highly-publicised High Court decision in Philip Nolan v Science Foundation of Ireland, [2024] IEHC 368 has put the spotlight back on the concept of ‘no-fault’ dismissals, writes Lewis Silkin’s Laura Ensor (small picture).

This is where an employer dismisses an employee in accordance with the terms of the employee’s contract of employment without giving a reason for the dismissal.

Particular interest

This decision is of particular interest because, although the employee was dismissed on a no-fault basis, there were allegations of misconduct in the background, thereby raising the questions, when is a dismissal truly ‘no fault’ and at what point is an employee entitled to fair procedures? 

The decision reaffirms the basic principle that, provided the dismissal is on a no-fault basis, at common law, an employer can potentially dismiss an employee in accordance with the contract of employment for any reason, or no reason, without the need for a procedure.

Dismiss quickly

This approach is often used by employers to dismiss senior employees quickly, avoiding the management time and cost involved in exiting an employee for performance or misconduct reasons.

In taking this approach, the employer is, of course, accepting that the employee will have a clear-cut unfair dismissal claim before the Workplace Relations Commission (where the employee has over one year’s service) as no reason is given for the dismissal and no process is followed.

However, the employer is often willing to accept the unfair dismissal risk as the lesser of two evils since this route should minimise the risk of the employee successfully obtaining an injunction to restrain their dismissal.

Injunctions

Instead of going down the statutory unfair dismissal route, an employee who is dismissed may bring a wrongful dismissal/breach of contract claim to the High Court.

As part of such a claim they can seek an injunction to restrain their dismissal pending their hearing.

If successful, this would usually include an order for the employer to continue paying the employee until the trial and, in some cases, an order to reinstate the employee pending the trial, giving the employee significant leverage.

The main reason for courts granting an injunction in such claims is because fair procedures were not followed.

However, the case law has confirmed that fair procedures are only required in circumstances where the employee is being dismissed for misconduct.

As the rationale behind a no-fault dismissal is that there are no reasons given, fair procedures are therefore not required and so the employee would have no basis to obtain an injunction.

However, the reality is there are often reasons – whether related to misconduct or performance issues – in the background, which may give rise to an injunction application, which is what occurred in Nolan.

Nolan v SFI

The background to this case is that Philip Nolan was employed by Science Foundation Ireland as director general.

On 27 May 2024, the SFI board terminated his employment on a ‘no fault’ basis.

On 30 May, he obtained an interim injunction to restrain SFI from taking any further steps on foot of the decision to dismiss him.

At the interlocutory hearing a few days later, Nolan argued that his dismissal was unlawful as it arose out of allegations of inappropriate behaviour made against him, that is, misconduct, and that no fair procedures were followed prior to his dismissal.

Contentious relationship

Prior to Nolan’s dismissal, his relationship with the board was certainly contentious, and a preliminary investigation had been carried out into five protected disclosures from senior staff members alleging misconduct, in particular bullying and breaches of corporate governance, against him.

Although the investigation found that his behaviour did not amount to bullying within the definition of the relevant policy in SFI, it did conclude that in two instances his behaviour was at the upper scale of inappropriate conduct and that he might have a case to answer.

A disciplinary hearing was recommended but had not yet been convened.

Sick leave

Nolan then went on sick leave, and during that time, details of the investigation were leaked in the media.

Upon his return to work, he sent an email to all staff in which he noted that the allegations made against him were not upheld.

The board then made the decision to terminate Nolan’s employment and, in the termination letter, noted the recommendations of the investigation report.

It went on to confirm that it had reached the conclusion that it was in neither parties’ interest to initiate a disciplinary process, but equally it could not “ignore the breakdown in the relationship”. 

SFI argued that Nolan had simply been dismissed in accordance with the provisions of his employment contract and not for misconduct (because they had not convened a disciplinary hearing and/or put those allegations to him).

As such he was not entitled to fair procedures, only compliance with the relevant contractual provisions.

Legal position

The judge set out the test for obtaining an injunction to restrain a dismissal, stating that Nolan had to meet a high threshold and show a “strong case” likely to succeed at hearing.

He acknowledged it was well-settled that an employee is entitled to fair procedures in disciplinary matters, but that it was equally well established that an employer is entitled to dismiss an employee for any or no reason on the giving of reasonable notice and cited several cases that affirm this position.

He also noted the Court of Appeal decision in O’Donovan v. Over-C Technology Limited [2021] IECA 37 which made it clear that no fair procedures are required where the dismissal is on grounds of poor performance.

The judge then referred to Bradshaw v Murphy [2014] IEHC 146 where, even though there was a disciplinary process in being (as he accepted was the case in Nolan), the court found an employer remains entitled to dismiss an employee in accordance with the contract.

That decision showed that the commencement of a disciplinary process does not necessarily preclude an employer from relying on a contractual entitlement to terminate.

'Cynical contrivance'

By way of contrast, the judge also cited Grenet v Electronic Arts Ireland Limited [2018] IEHC 786 where the High Court granted an injunction in circumstances where it determined that “the so-called no-fault termination is, on the balance of probabilities a cynical contrivance”.

In Grenet, however, the employer had initially purported to terminate the employee’s employment for misconduct, but then withdrew this termination and attempted to terminate the employee’s contract pursuant to its contractual provisions.

The judge noted that the requirement for fair procedures depends on the reasons for the dismissal as a matter of substance, and not the employer’s characterisation of those reasons.

Grounds of misconduct

The judge found that Nolan had not established a sufficiently strong case that he had been dismissed on grounds of misconduct.

He noted that the characterisation of the dismissal as no-fault was somewhat contrary to the letter of dismissal and SFI’s affidavits in which multiple instances of alleged dysfunction in the operation of SFI were detailed.

He added that it was difficult to avoid the inference that the SFI board considered Mr Nolan was at fault for that dysfunction, at best this would suggest that he was dismissed for poor performance, in which case fair procedures would not be required.

The judge acknowledged that there might not always be a clear distinction to be drawn between allegations of misconduct and those of poor performance and that not only allegations of misconduct carry implications for an employee’s reputation.

He said it would be tempting to conclude that, because the circumstances of the plaintiff’s dismissal, exacerbated by media coverage, had potentially impacted Nolan’s reputation, his dismissal should be characterised as dismissal for misconduct, thus attracting fair procedures.

However, he noted that would be to reverse the logic of O’Donovan. Importantly, he found that it is the reason for dismissal which can trigger the right to fair procedures, not the potential impact on reputation.

'Usually some reason' for dismissal

This case highlights the reality that there is usually some reason for a dismissal and that it is rare that a dismissal is truly without fault.

It confirms that it is only in dismissals for misconduct that fair procedures are required.

This decision raises the bar for employees when seeking an injunction as the test of a ‘strong case’ was not met, even where the High Court accepted that there was a disciplinary process in being and that the employer’s decision-making may have crossed a threshold into considerations of misconduct.

Very high threshold

It is clear from this decision that the threshold an employee must reach to obtain an injunction is very high.

While this case is helpful for employers when seeking to terminate an employee’s employment on a 'no fault' basis without the risk of an injunction, even when there are misconduct issues in the background, it is quite fact-specific where there was a total breakdown at the management level of SFI, which has a statutory function to fulfil. 

The case may have been decided differently on other facts and so employers should still approach such dismissals with care.

However, it raises the question as to whether an employer (who is willing to accept the risk of an unfair dismissals claim) would be better off terminating an employee for no reason at all, or giving some reason (other than misconduct) for the dismissal, as was the approach taken here.

The judge in Nolan relied heavily on the reasons for the dismissal given by SFI in its affidavits during the hearing to determine that they were not misconduct related.

If those reasons had not been given on affidavit, it may have been easier for Mr Nolan to succeed in making out a strong case that the dismissal was for misconduct.

• Laura Ensor (small picture), is a managing associate in the employment, immigration and reward team, in Lewis Silkin’s Dublin office.